Download sq-macro-S`98

FINAL EXAM
Name:
Please answer the questions in order as we did in class.
Make sure you answer all parts!
1.
What is the "good news" of being at the potential output level? (6 pts.)
2.
Allow the model to include government and the international economy, and
graph the Keynesian cross. Indicate that the economy is at an equilibrium
at the potential output level. (8 pts.)
3.
a. Name any single factor affecting consumption. How would that factor
change in order to cause a recessionary gap?
b. Name any single factor affecting investment. How would that factor
change in order to cause a recessionary gap?
a. Name any single factor affecting exports. How would that factor change
in order to cause a recessionary gap? (9 pts.)
4.
Graphically illustrate a recessionary gap.
5.
a. How could fiscal policy be used to close a recessionary gap?
b. Briefly explain. (6 pts.)
6.
a. What are the Fed's three tools of the monetary policy?
b. Define each and explain how each is used to close a recessionary gap.
(18 pts.)
7.
a. In the context of our studies, what does "holism" mean?
b. Briefly discuss. (7)
8.
a. For Korten, what is the "growth illusion"?
b. Discuss. (12)
9.
a. For Korten, what is wrong with the economy?
b. How can it be remedied? (8)
(4 pts.)
10. Bretton Woods:
a. When?
b. Who?
c. Where?
d. Name the three pieces of the Bretton Woods agreement.
(9)
11. a. State the law of comparative advantage.
b. Korten responded to the mainstream support for free trade with a
discussion entitled "The Betrayal of Adam Smith and David Ricardo." What
was Korten's point about how Adam Smith has been "betrayed" by modern
proponents of free trade?
c. How has Ricardo been "betrayed"? (11)
12. What idea (either big or small), statistic, fact, or insight did you
encounter this semester that you think you are most likely to remember ten
years from now? (2 pts.)
Remember your pledge!
Have a wonderful summer!
•
BRING YOUR KORTEN BOOK TO CLASS THIS WEEK
•
FOR WEDNESDAY WATCH "SURVIVING THE BOTTOM LINE"
PART 1 - "RUNNING WITH THE BULLS" TO BE SHOWN MONDAY AT 7 PM IN SLC 202
•
FOR FRIDAY WATCH "SURVIVING THE BOTTOM LINE"
PART 2 - "LIVING ON THE FAULT LINE" TO BE SHOWN TUESDAY AT 11 AM IN SLC 203,
PART 4 - "BEATING THE BOTTOM LINE" SHOWN WEDNESDAY AT 7 PM, SAME PLACE
•
VIDEOS ARE ALSO ON RESERVE
•
PREPARING FOR MACROECONOMICS FINAL
Eighty percent of your final exam will come off this sheet.
altered as we discuss them.
Questions may be
From traditional macroeconomics:
1.
What is the "good news" of being at the potential output level?
2.
Allow the model to include government and the international economy, and
graph the Keynesian cross. Indicate that the economy is at an equilibrium
at the potential output level. Briefly explain the factors that could cause
a recessionary gap. Repeat for inflationary gap. Graph each case.
3.
How can fiscal policy be used to close each gap? Briefly explain. What
would be the appropriate monetary policy? Briefly explain how it causes the
gap to close.
4.
What are the Fed's three tools of the monetary policy? Define each and
explain how each is used to close a recessionary gap and an inflationary
gap.
5.
Define "multiplier" and explain how it works. Explain what could cause the
multiplier effect to become larger.
From Korten:
6.
Explain how the interests of the transnational corporations diverge from the
human interest.
7.
Discuss the "growth illusion."
8.
Korten's approach is "holistic." Discuss and give examples.
Contrasting the perspectives:
9.
For Korten, what are the signs that the economic system is working well or
not working well? What are the measures of economic success of mainstream
economic theory? What are the measures of economic success of the popular
press? Which do you think are the appropriate measures? Explain/defend
your list, i.e., why did you include what you did and why did you omit what
you did?
10. What's wrong with the economy according to mainstream macroeconomic theory?
How can that be remedied? What's wrong with the economy according to
Korten? How can that be remedied? With which perspective are most in
agreement? Comment.
11. What idea (either big or small), statistic, fact, or insight did you
encounter this semester that you think you are most likely to remember ten
years from now?
Remainder of the test will be comprehensive.
EXAM TIME IS FRIDAY AT 8:30 AM.
Korten exam - Open book.
3-4 pages, typed, double-spaced
Doing some political economy:
What does Korten mean by preferring the local over the global? Discuss his principal reasons for this preference.
Name:
Suggestions:
•
Questions are on the back and front. If you get stuck move ahead and come back.
•
Complete sentences are NOT required; get right to the point.
•
Keep an eye on the time.
•
Do your best, and GOOD LUCK!
1.
What are the three economic questions that every society must answer? (6 pts.)
2.
Name Smith's most famous work.
When was it published? (4)
3.
Provide an example of opportunity cost. (5)
4.
What is a "trade deficit"? (4)
5.
Circle any correct answers. (6)
A "discouraged worker"
a. is in the labor market.
b. could be frictionally unemployed.
c. could be structurally unemployed.
6.
What does it mean to have a "weak" currency?
Is there any advantage to having a "weak" currency? If so, what is it?
Is there any disadvantage to having a "weak" currency? If so, what is it? (9)
7.
Adam Smith criticized four specific Mercantilist practices. (14)
a.) What were they?
b.) What was the one goal common to these four Mercantilist practices?
8.
The following table shows the output from one unit of labor.
Country A
Manufactured goods
Agricultural goods
2
4
In this example, what are the gains from specialization and trade? Explain. (12)
9.
Is Country G an importer or an exporter?
Draw on the graph the amount of imports or exports.
In Country G who is helped by international trade and how are they
helped?
In Country G who is hurt by international trade and how are they hurt?
According to economic theory, which is bigger, the pain to those hurt, or the gain to those helped?
According to theory, how do we know? (18)
10.
Country B
What does NAIRU stand for? Discuss the concept. (12)
1
2
11.
How might the East Asian economies cause deflation in the US?
Explain a possible negative consequence of deflation. (10)
Study questions for Macroeconomics: Let these questions direct your study energies, but don't be
narrowly focused ONLY on the questions. Let them point you, but also consider the related
issues. Recommendations:
• Write out answers to every question!
• Work with and/or compare notes with classmates.
• Bring your answers to the Q/A session.
• See me on Monday or Tuesday for help.
As announced in class, I am leaving on Wednesday immediately after class to attend a
professional conference and will be unavailable until Monday.
1. What are the three economic questions that every society must answer? Explain how these
were answered under feudalism. Why did feudalism break down?
2. Enclosure movement: When? What? Where? Why? What did the serfs do?
3. What was the overarching goal of government policies under Mercantilism? Adam Smith
criticized four specific Mercantilist practices. What were they? Who did they help, and
how? Who did they hurt, and how? Why did Mercantilism break down?
4. Identify the sources of societal order during feudalism, under Mercantilism, and for Smith in
the emerging economic system. Provide an example that supports Smith's perspective
concerning the benevolence of "the invisible hand" and one that does not.
5. Name Smith's most famous work. When was it published? What did Smith mean by
"wealth"? Review your notes concerning your Smith reading.
6. For Smith what were the appropriate roles of government?
7. Define and give an example of opportunity cost.
8. Distinguish between microeconomics and macroeconomics.
9. For what two reasons do economists tend to favor markets? Critique, as we did in class, the
idea that trade always is mutually beneficial.
10. State the law of demand and graph the demand curve. Distinguish between "change in
demand" and "change in quantity demanded." State the supply relationship and graph the
supply curve. Distinguish between "change in supply" and "change in quantity supplied."
11. Graph the supply curve and the demand curve together and assume that the price is above
the equilibrium. Explain the process of reaching the equilibrium. Repeat for an initial
price below the equilibrium.
12. Briefly explain Brown's four reasons that nations trade. "Review questions" on page 526:
3, 5; "problems" on pages 526-7: 3a-3e, 4.
13. I put a chart on the board distinguishing between the "theory" and "reality" of comparative
advantage. Be familiar with the list. In your view, for which item in the list does the gap between
"theory" and "reality" seem to be the largest? What do you base that impression on?
14. Explain the impact of a trade deficit on a nation's GDP. How does the deficit affect the citizens'
ability to consume?
15. Graph the supply and demand for German marks priced in terms of yen. Label both axes and show
the equilibrium exchange rate.
16. Bretton Woods: When? Who? Where? Briefly explain the three pieces of the Bretton Woods
agreement. Distinguish among fixed exchange rates, flexible rates, and a pegged rate. When did
Bretton Woods end? Why?
17. Distinguish between a strong currency and a weak currency. What is the advantage to each? What
is the disadvantage to each?
18. To what purpose are IMF loans usually put? What conditions are often placed on these loans?
19. Explain why the East Asian countries want to maintain their currency values. (I put four reasons
on the board.)
20. Demonstrate with a supply and demand graph the effect of a decline in the demand for the Thai
baht. The declines in the demand for the East Asian currencies was caused by the loss of
confidence in the East Asian economies. In general terms (as we discussed in class) why did
foreigners lose confidence in the East Asian economies? What does it mean to say that "stocks are
overvalued"?
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33.
In a sentence explain how a higher interest might be effective in luring foreigners and their money
back into an East Asian economy. Who in the East Asian economy is responsible for using
monetary policy to try to raise the interest rates? What is the potential negative effect of higher
interest rates? (So, you see the difficult balance that is sought: an interest rate high enough to lure
in foreign investors, but not SO high as to cause the negative effect.)
How might the East Asian economies cause deflation in the US?
Discuss the significance of the 1930s in the development of macroeconomics, i.e., what? why?
who? What are the three usual goals of macroeconomic policy? When in legal terms did the
government assume responsibility for economic stabilization, i.e., what law?
What does it mean to be officially unemployed? Who is in/out of the labor force? Define
"unemployment rate." What is the current unemployment rate?
Name and define the three types of unemployment. Explain the government's goal concerning
unemployment.
According to critics, how does the official unemployment rate understate the true extent of
unemployment?
What are the costs to society of unemployment?
Define inflation. Explain the two types of inflation. What is the current inflation rate?
Name and distinguish among the three price indices. Be able to fill in a chart as we did in class in
which you obtain and interpret price indices, and use them to obtain real income and real GDP.
Also, know how to obtain the inflation rate.
Who does inflation hurt? How? Explain the tradeoff between inflation and unemployment.
Define "gross domestic product." What is in the underground economy, and how big is it
estimated to be?
Explain two methods for obtaining the GDP. Define: investment, net exports.
Summarize the information in the graphs on page 155, 160, and 161.
1.
2.
What are the four assumptions of the simple Keynesian model?
Fill in the chart and graph the consumption function. What is the value of the
MPC? What is the value of the slope of this consumption function? Write the
equation for this consumption function. Given this function, what is the value
of the MPS? Define "marginal propensity to consume" and "marginal propensity
to save."
Income
Consumption
Savings
$0
$200
500
600
1000
1500
2000
2100
3.
What factors cause an upward shift of the consumption function? What causes
movement up along a consumption function? Why does a consumption function
rotate? What does "autonomous" mean in this context?
According to our simple model how is the level of Io determined? Graph our
simple investment function. Why is it sloped that way? What could make it
shift up? down?
In a fuller model, what are two other determinants of investment and how might
each increase investment? (see Brown, pp 213-4)
Distinguish between planned and unplanned investment. Explain how each effects
the level national output.
In the Keynesian model, what determines the level of the nation's output?
If GDP exceeds Ep, what happens to the output level? Graph and explain. If
GDP is less than Ep, what happens to the output level? Graph and explain.
Define multiplier. Provide its mathematical expression. Use the circular
flow and "the chart" to explain how the multiplier works. Algebraically
derive the value of the multiplier. Explain what could cause the multiplier
effect to become larger.
Explain what is meant by "potential output." What is "fiscal policy"?
Define each gap. According to classical economists, how would each "gap"
close itself?
Allow the model to include government and the international economy, and
graph the Keynesian cross. Indicate that the economy is at an equilibrium
at the potential output level. List the factors which could now cause a
recessionary gap and briefly define each. Repeat for inflationary gap.
Graph each case. How could fiscal policy be used to close each gap?
Briefly explain.
How will an increase in autonomous taxes of $100 billion affect Ep? Let
the MPC = .75
What is stagflation? How is it remedied in the Keynesian model?
What are the functions of money? What is M1?
Who creates money? How? When does the size of the money supply decrease?
Define/identify: reserves, required reserves, excess reserves, Federal
Reserve
Demonstrate the relationship between bond prices and interest rates.
Graph money demand. Why is it downward sloping? Graph money supply and
explain its shape.
Graph money supply and demand together and assume the interest rate is above
the equilibrium. Explain the process of reaching the equilibrium. Repeat
for below the equilibrium.
Graph money supply and demand together and illustrate the effects of
monetary policy.
How do changes in money supply effect the Keynesian model? What is the
appropriate monetary policy in the case of each of the "gaps"?
What are the Fed's three tools of the monetary policy? Define each and
explain how each is used to close a recessionary gap and an inflationary
gap.
Concerning the government debt: Why all the fuss? I presented one "nonissue," three "genuine issues," and two "unclear" issues. Why did I use
quotation marks? Discuss (as we did in class) each of the issues.
Explain two examples of how automatic stabilizers work to fight recession.
Economists are typically against a Balanced Budget Amendment for two
reasons. What are they?
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23. Draw the circular flow model and include the government and foreign
countries. As leakages increase, what happens to the size of the
multiplier? Why? What is economists' estimate of the value of the
multiplier in the US? Consequently, what is the value of our MPL?
Interpret the meaning of MPL?
The remaining 25 percent of the exam will come from the semester's study
questions. Add to those the following:
PREPARING FOR MACROECONOMICS FINAL
Seventy-five percent of your final exam will come off this sheet.
1.
2.
3.
4.
5.
6.
7.
8.
For Korten, what are the signs that the economic system is working well or
not working well? What are the measures of economic success of mainstream
economic theory? What are the measures of economic success of the popular
press? Which do you think are the appropriate measures? Explain/defend
your list, i.e., why did you include what you did and why did you omit what
you did?
What are the goals of the policies prescribed by mainstream economic theory?
Provide three specific policies recommended by Korten. For these specific
policies, and in general, what are the goals of his policy prescriptions?
What is the "good news" of being at the potential output level?
Allow the model to include government and the international economy, and
graph the Keynesian cross. Indicate that the economy is at an equilibrium
at the potential output level. Briefly explain the factors that could cause
a recessionary gap. Repeat for inflationary gap. Graph each case.
How can fiscal policy be used to close each gap? Briefly explain. What
would be the appropriate monetary policy? Briefly explain how it causes the
gap to close.
What are the Fed's three tools of the monetary policy? Define each and
explain how each is used to close a recessionary gap and an inflationary
gap.
Define "multiplier" and explain how it works. Explain what could cause the
multiplier effect to become larger.
What idea (either big or small), statistic, fact, or insight did you
encounter this semester that you think you are most likely to remember ten
years from now?
These big questions may be altered during our discussion. Answer them based
on Korten.
1.
Discuss Korten's response to the mainstream view that the
internationalization of the economy is a positive development.
2.
Distinguish between multi-national corporations and transnational
corporations. Explain how the interests of the transnationals diverge
from the human interest.
3.
Discuss the growth illusion.
4.
Korten's approach is "holistic." Discuss.
5.
From a substantive content perspective, what was Korten's big weakness?
Write out your pledge and sign it!
These big questions may be altered during our discussion. Answer them based
on Korten.
1.
Discuss Korten's response to the mainstream view that the
internationalization of the economy is a positive development.
2.
Distinguish between multi-national corporations and transnational
corporations. Explain how the interests of the transnationals diverge
from the human interest.
3.
Discuss the growth illusion.
4.
Korten's approach is "holistic." Discuss.
5.
From a substantive content perspective, what was Korten's big weakness?
The remaining 25 percent of the exam will come from the semester's study
questions. Add to those the following:
1.
2.
3.
What are the functions of money? What is M1?
Who creates money? How? When does the size of the money supply decrease?
Define/identify: reserves, required reserves, excess reserves, Federal
Reserve
4.
Demonstrate the relationship between bond prices and interest rates.
5.
Graph money demand. Why is it downward sloping? Graph money supply and
explain its shape.
6.
Graph money supply and demand together and assume the interest rate is above
the equilibrium. Explain the process of reaching the equilibrium. Repeat
for below the equilibrium.
7.
Graph money supply and demand together and illustrate the effects of
monetary policy.
8.
How do changes in money supply effect the Keynesian model?
9.
Concerning the government debt: Why all the fuss? I presented one "nonissue," three "genuine issues," and two "unclear" issues. Why did I use
quotation marks? Discuss (as we did in class) each of the issues.
10. Explain two examples of how automatic stabilizers work to fight recession.
11. Economists are typically against a Balanced Budget Amendment for two
reasons. What are they?
Macroeconomics - Test 2 (takeover)
There are questions on the back.
Complete sentences are not needed.
1.
Define "marginal propensity to save." (5 pts.)
2.
Define "open market operations." (5)
3.
Define "stagflation."
Name:
According to the Keynesian model, how should policy makers address stagflation? (8 )
4.
Graph an inflationary gap. Fully label the graph. (10)
5.
According to classical economists, how does an"inflationary gap" close itself? (10)
6.
Assume the inflationary gap is $160 billion and that the MPC is 0.8.
If ONLY government spending were to be used to close the gap, would government spending be increased or decreased?
By how much?
Alternatively, if the government wanted to close the $160 billion inflationary gap using ONLY autonomous taxation, would the
government tax more or less?
By how much? (14 pts.)
7.
Illustrate with a graph the appropriate monetary policy needed to close an inflationary gap. Fully label the graph.
According to the Keynesian model how does the monetary policy (that you graphed on the previous page) work to get the economy
to potential output? (14)
8.
Who creates money?
How? (6 pts)
9.
Why is money demand downward sloping? (5 pts)
10.
Graph Io.
What are two changes that could make Io shift up? (9 pts.)
11.
Define multiplier (the concept in words, not the mathematical formula).
If the MPC is 0.75 and the MPS is 0.25, what is the numeric value of the multiplier?
Assume that the equilibrium output level is $80 billion BELOW potential output and that the government wants to use ONLY
government spending to fix the economy. If the MPC is 0.75 and the MPS is 0.25, how must government alter its spending to get
the economy to an equilibrium at potential output. (14)
23. Draw the circular flow model and include the government and foreign
countries. As leakages increase, what happens to the size of the
multiplier? Why? What is economists' estimate of the value of the
multiplier in the US? Consequently, what is the value of our MPL?
Interpret the meaning of MPL?